Allegiant scores leniency from DOT in CARES Act obligations

Allegiant is a different sort of airline. It certainly is not a network carrier and only partially fits in the definitions typically ascribed to the ultra low cost carrier model. This presents a special set of challenges when it comes to meeting the minimum service obligations of the CARES Act. Fortunately the US Department of Transportation has seen fit to grant leniency to the carrier, though its obligations still remain significant.

As initially mandated by the Department of Transportation the Allegiant obligation would exceed that of Alaska Airlines despite the former being a much smaller carrier. Moreover, the CARES Act focuses on a need to maintain connectivity for all airports to the national aviation network to ensure that critical movement of cargo and business travelers can be accommodated. Allegiant handles neither of those. Indeed, in its request for exemptions from the DOT Allegiant highlights just how little business travel it accommodates:

The presence of an occasional business traveler on an Allegiant flight is purely coincidental, as Allegiant has never sought to attract such passengers. As a consequence, Allegiant has no core traffic it can rely on that must travel even in the face of a pandemic.

Allegiant scores many exemptions

Allegiant asked the DOT to waive all service requirements at 21 destinations, promising to “voluntarily maintain a minimal level of service at certain of these points for portions of the next six months.” The carrier received a positive response on 11 of the 21, though the allowance is not a perfect win for the carrier. Rather than allowing the airline to define the service levels the DOT simply adjusted the number of weekly flights required.

The Department acknowledges that Allegiant is different in its ruling, with a unique business model and operating strategy:

Compared to other small carriers, and as noted in its application, Allegiant operates a markedly different business model, which is more akin to an on-demand charter carrier than a scheduled passenger carrier. Its operational model is focused exclusively on point-to-point service, largely from underserved small- and medium-sized markets to leisure destinations. The airline does not carry connecting traffic or cargo and uses only one aircraft type, which limits its ability to adjust aircraft gauge to correspond with reduced demand. Allegiant relies on flexible scheduling, which enables it to reduce aircraft utilization regularly to adjust to low customer demand. As a result, its block hours per day and per month vary significantly more than other carriers that typically seek to maximize aircraft utilization. Further, it serves the majority of its network points less than daily, sometimes less than weekly or monthly, with service offerings that greatly fluctuate from week-to-week and month-to-month, depending on passenger demand.

With this action, the Department seeks to address some disproportionate impacts that Order 2020-4-2 would have on Allegiant due to its business model, including the uniquely large variance in operations from one month to the next.

But rather than allowing Allegiant to control its own scheduling the DOT will still mandate a service level of 1x weekly at nearly all of the destinations the carrier sought exemptions for. Only San Juan, PR (previously planned termination of service) and Montrose, CO (financial support from the local community withdrawn) will be fully cut.

For another nine destinations the DOT will allow Allegiant to reduce its obligation from three weekly flights to just one. This exception is granted with two different timelines. Service to Bellingham, WA (BLI) and McAllen-Mission, TX (MFE) can operate at lower frequencies until 30 June 2020. For the following seven airports the exemption applies through 30 September 2020, the end of the CARES Act requirements:

Dayton, OH (DAY)

Grand Forks, ND (GFK)

Moline-Quad Cities, IL (MLI)

Ogdensburg, NY (OGS)

Raleigh-Durham, NC (RDU)

Rochester, NY (ROC)

St. Cloud, MN (STC)

Tucson, AZ (TUS)

For the other nine airports in the application the DOT declined the request, noting that they already were only obligated to receive one flight per week.

A difficult balancing act for the DOT

Picking and choosing which airlines can cut service at which airports is not a trivial task. Still, the DOT’s rationale with this ruling is a bit hard to follow. On the one hand the Department admits that “Allegiant, however, operates differently, with a great deal of variability from week to week and month to month. This variability has the potential to create a disparate impact on the carrier vis-à-vis its service obligation, potentially requiring it to operate a much larger share of its schedule relative to other carriers and resulting in minimum service levels for Allegiant that are not reasonable or practicable for a small carrier…”

But even that cannot overwhelm what the DOT believes is its obligation to ensure “no point in the carrier’s network will experience a total loss in service or eliminate passenger access to the national air transportation system.”

Under the initial ruling Allegiant estimated an obligation to operate 270 more round trip flights than market conditions would support. Revising this analysis with the exemptions included suggests that the carrier will still be obligated to fly roughly 80 more trips than it wants to through the summer. It is far from perfect, but it certainly helps.

About Seth Miller

Seth Miller has over a decade of experience covering the airline industry. With a strong focus on passenger experience, Seth also has deep knowledge of inflight connectivity and loyalty programs. He is widely respected as an unbiased commentator on the aviation industry.

He is frequently consulted on innovations in passenger experience by airlines and technology providers.